Switzerland lies in the heart of Europe. The EU and its 27 Members States are the most important partners for Switzerland. This is especially true for the economic relationship: every third Swiss Franc that Switzerland earns is the result of trade with the EU.

Switzerland is not a Member State of the EU. It has organized its relationship with the EU by a series of bilateral agreements in specific areas. The relationship between Switzerland and the EU has developed and deepened over the decades. It all started in 1972, when the Free Trade Agreement was signed. The Swiss government proposed further integration with the EU in 1992 with the joining of the European Economic Area (EEA). However, the Swiss electorate rejected the government's proposal.

As a result of this rejection, Switzerland intensified the "bilateral-path" with the EU. In 1999, seven bilateral agreements – the so-called Bilaterals I – were concluded and accepted by the Swiss voters. They were followed by eight bilateral agreements - the Bilaterals II – which were signed and accepted in 2004 and 2005 respectively. These agreements provide extensive market access and form the basis for close cooperation in key policy areas such as research, security, asylum, environment and cultural affairs.

As of today, Switzerland wants to continue and further develop this "bilateral-path", although a recent popular vote to limit the flow of workers across Swiss borders sets a challenge to this.

Switzerland is a member of the European Free Trade Association (EFTA). In order to facilitate trade between the European Community (EC; now EU) and the EFTA countries, free trade agreements were concluded between the then EC and individual EFTA countries. The Swiss electorate approved the respective Free Trade Agreement in 1972.

The Free Trade Agreement liberalizes trade in industrial products and establishes a Switzerland-EU free trade zone for respective products. It prohibits any form of customs duties or quantity restrictions in trade in the respective industrial products.

The Insurance Agreement between Switzerland and the EU (previously EC) entered into force in 1989.

The Agreement ensures reciprocal freedom of establishment of insurance companies, however excluding life insurance. This enables Swiss insurers to open up agencies and branches in the EU countries for offering casualty insurance (such as homeowners or motor vehicle insurance).

The original Customs Facilitation and Security Agreement was signed in 1990 and entered into force in 1991. In 2009 the revised Agreement on Customs Facilitation and Security was signed and was provisionally implemented.

This Agreement regulates the controls and formalities for goods transport at the border between Switzerland and its neighboring EU-countries.

The Bilaterals I are a direct result of Switzerland's rejection to join the European Economic Area (EEA). After this, decision negotiations were initiated between Switzerland and the EU in seven specific sectors. The seven agreements were negotiated and signed together (parallelism) and they are linked in legal terms by a so-called "guillotine-clause". This means that they can only take effect together; if one of the agreements were not prolonged or terminated the other agreements would also cease to be valid. The agreements are not self-executing and respective regulations had to be incorporated in Swiss and EU law. The implementation of each agreement is supervised by a joint committee.

The seven agreements were signed by Switzerland and the EU on 21 June, 1999. On 21 May, 2000 the Swiss electorate approved them with 67.2 % and they entered into force on 1 June, 2000.

The Bilateral Agreements I are typical market liberalization agreements with exception of the Research Agreement.

The Agreement on Overland Transport provides a gradual and reciprocal opening of the markets for road and rail transport. Switzerland’s transport policy based on road-to-rail transfer is thereby anchored in the European framework. The agreement coordinates the Swiss transport policy with that of the EU. It regulates the introduction of a heavy vehicle tax (LSVA) in Switzerland and the increase of the maximum weight for trucks in Switzerland to 40 tons.

The Agreement on Free Movement of Persons provides for the equal treatment of Swiss and EU citizens in taking up residence and work. Accordingly, it regulates the gradual and controlled opening up of the labor markets. For this, transitional arrangements were set up. The agreement covers employed workers, self-employed people as well as people without gainful employment, as long as they provide the required financial means and have health insurance. In addition, the agreement provides for the reciprocal recognition of professional diplomas as well as the coordination of the national social security systems.

An additional Protocol I was added to the Agreement for the ten states that joined the EU in 2004. This Swiss electorate accepted this Protocol I in 2005 and it entered into force on 1 April 2006. An additional Protocol II was added for Bulgaria and Rumania who joined the EU in 2007. The Swiss electorate accepted this extension of the Agreement on 8 February 2009 and on the same day also approved the continuation of the Agreement on Free Movement of Persons in general. Protocol II entered into force on 1 June 2009. These Protocols set up different transitional arrangements for the new EU members (for more information regarding the transition periods see: http://www.amcham.ch/key_topics/p_business_ch.asp?s=2&c=20).

On February 9 2014 the Swiss population adopted a popular initiative aimed at stopping mass immigration. It thereby expressed its support for a change of system in Switzerland’s immigration policy within the next three years. The new constitutional provisions require that immigration be restricted by means of quantitative limits and quotas. The Federal Council will set to work on implementing these without delay. Until the relevant implementing legislation comes into force, the free movement of persons between the EU and EFTA member states and Switzerland applies as before (For more information see IV.)

The Agreement on Research covers the participation of Swiss institutes (universities, companies, individuals) in the EU Framework Research Program (ERP). It was renewed in 2004 as well as 2007. The EU and Switzerland have agreed on a partial association in the new ERP called Horizon 2020.

According to the Agreement on Public Procurement the obligation to invite tenders in the context of procurements and construction in accordance with WTO rules is extended to the level of municipality and to the procurement activities of public and specific private sector companies, in particular sectors such as rail transportation and energy.

The Agreement on Agriculture simplifies the trade in agricultural products in certain areas such as chees and processed dairy products. This is done either through the dismantling of tariffs or by the mutual recognition of the validity of regulations in the areas of veterinary medicine, plant protection or biological agriculture.

This Agreement, which is also known as the Mutual Recognition Agreement (MRA), simplifies the admission of products and calls for mutual recognition of conformity tests for most industrial products. Testing and admission for the respective products for the entire European market is the responsibility of a single certification authority, which is either in Switzerland or in the EU.

The second round of bilateral agreements, the Bilaterals II, consider on the one hand economic interests (food industry, tourism, financial services) and on the other extend cooperation between Switzerland and the EU to important political areas such as security, asylum, environment and culture.

Switzerland was interested in agreements in the areas of processed agricultural products, statistics, environment, MEDIA, education, pensions and services. In addition, an area of special interest to Switzerland was the participation in the Schengen/Dublin arrangements regarding security and asylum. The EU on the other hand wanted to include Switzerland in the system of cross-border taxation of savings and the stepped-up efforts to combat fraud in relation to indirect taxes.

After lengthy negotiation based on the principle of parallelism, the Bilaterals II – which included nine sectoral agreements - were signed on 26 October 2004. In contrast to the Bilaterals I, the Bilaterals II are not legally linked to each other; each agreement can take effect independently. A referendum was only held on the Schengen/Dublin Association Agreement, which was approved on 5 June, 2005. All but the Agreements on education and on the fight against fraud are in force now.

According to the Agreement on Taxation of Savings Switzerland collects a withholding tax on interest on behalf of the EU Member States on natural persons whose residency is in an EU Member State. Furthermore, Switzerland will provide administrative assistance on request in case of tax fraud or other serious offenses. However, the agreement does not provide for an automatic exchange of information between the tax authorities.

The Agreement on Fight against Fraud improves the cooperation in the fight against smuggling and other offences relating to indirect taxes (customs, VAT, consumer taxes), in the area of subsidies and in public procurement markets.

Switzerland implemented this agreement early (as of 8 April 2009) in cooperation with those EU countries that have ratified the treaty. The agreement will enter into force once the EU and all EU Member States have ratified it.

With the Bilateral Agreement in the Fields of Justice, Police, Asylum and Migration (Schengen/Dublin) Switzerland gets access to the instruments for cooperation on security and asylum within the EU, i.e. the Schengen/Dublin security and asylum system.

The Schengen system abolishes the systematic control of individual movement at the borders and therefore facilitates cross-border traffic. At the same time the agreement also introduces measures to improve security, such as stricter border controls at EU external borders and several cross-border cooperation mechanisms, such as the Schengen Information System (SIS).

The Treaty of Dublin deals with asylum migration and states that asylum cases are handled by one state only. This helps avoiding multiple asylum applications.

The Agreement on Processed Agricultural Products revises Protocol Nr. 2 to the Free Trade Agreement EU-EFTA. It abolishes tariffs and export subsidies for a large number of food industry products and accordingly eases trade in processed agricultural products.

With the Agreement on Environment Switzerland becomes a member of the European Environmental Agency (EEA). The EEA collects and analyses data on the environmental situation and advises the European Commission on environmental policy.

The Agreement on Statistics harmonizes and improves the exchange of comparable statistical data between Switzerland and the EU. As a result, Switzerland has access to a number of European databases covering a wide range of areas such as the labor market, social security, transportation and the environment, which enable it to improve the quality and comparability of data needed in political and economic decision-making.

MEDIA is a group of programs the EU has set up in order to improve competitiveness of the European film industry. The Agreement on Media grants Switzerland and its filmmakers full access to these programs.

The original agreement entered into force on 1 April 2006. The agreement was renewed in 2009. The renewed agreement entered into force on 1 August, 2010.

On 9 February 2014 the Swiss population adopted a popular initiative aimed at stopping mass immigration. It thereby expressed its support for a change of system in Switzerland’s immigration policy within the next three years. The new constitutional provisions require that immigration be restricted by means of quantitative limits and quotas. This brings a change of system in Switzerland's immigration policy. The Federal Council will set to work on implementing these without delay. Until the relevant implementing legislation comes into force, the free movement of persons between the EU and EFTA member states and Switzerland applies as before.

It will have to be seen how the new constitutional provision is implemented into national law and how it will impact the existing bilateral agreements with the EU - in particular the agreement on Free Movement of Persons. The Federal Council is already in exploratory talks with the EU and its member states on this matter.

Nevertheless, the recent vote already had some direct implications: Switzerland has halted the extension of the free movement of persons to Croatia (protocol III) but granted additional quotas to Croatia; the EU only agreed on a partial association of Switzerland in the new ERP called Horizon 2020 and does not allow the full association of Switzerland in the the popular university exchange program "Erasmus+".

Switzerland is participating in the efforts to reduce social and economic disparities in the EU, especially with regard to the new Member States in the east. Switzerland has decided to make an Enlargement Contribution, which is an independent contribution to the EU Cohesion Policy. The receiving Member States are the 10 states which joined the EU in 2004 as well as Romania and Bulgaria which joined in 2007. Switzerland's contribution amounts to over CHF 1'257 billion and is implemented autonomously. The legal basis for this contribution is the Federal Act on Cooperation with the Countries of Eastern which was approved by the Swiss electorate on 26 November, 2006.

Does Switzerland intend to join the EU?

The Swiss government does no longer pursue the "strategic goal" of an EU membership like it used to. In 2010, the Swiss Federal Council published a Report on the evaluation of Switzerland's European Policy. In this report, the Federal Council assessed the advantages and disadvantages of the various European policy instruments. The report concludes that the bilateral path is the most suitable instrument for Switzerland to pursue at this point in time. However, the Federal Council also acknowledged that this could change in the future.

What are the challenges Switzerland will face in pursuing the bilateral path?

Switzerland will face the following challenges:

-

The EU has enlarged and deepened over the last years. The result of this is that the EU has become less flexible for adhoc solutions with Switzerland.

-

EU legislation is constantly undergoing changes and further development. Bilateral agreements on the other hand are static.

-

The EU requests more and more that in order to be part of the internal market the same legal conditions must apply for all participants. Accordingly, the EU is asking Switzerland to comply with a uniform and simultaneous application and interpretation of EU legislation.

-

In light of the recent adopting of the popular initiative against mass immigration, Switzerland will need to find a way to implement the popular initiative in a way that is compliant with the Agreement on the Free Movement of Persons or renegotiate the respective agreement.

In what areas can we expect further agreements between Switzerland and the EU?

On the one hand negotiations are already taking place in several new areas such as agriculture/food safety/product safety and public health and satellite navigation.

On the other hand an informal working group has been set up in order to address institutional issues that constantly recur in the context of the bilateral agreements.

As of today, the negotiations in these new areas have been very delicate. No new agreements have been concluded yet with the exception of the Agreement on the protection of geographical indications that was signed on 17 May, 2011.

In light of the adopting of the popular initiative against mass immigration the situation at the moment appears even more delicate and incalculable. The relation between Switzerland and the EU needs to be clarified. Until that, further agreements seem unlikely.